Crowley Maritime v. Boston Old Colony Ins.

• Decision Date: 11 January 2008
• Docket Number: No. A116710.,A116710.
• Citation: 158 Cal.App.4th 1061,70 Cal.Rptr.3d 605
• Parties: CROWLEY MARITIME CORPORATION, Plaintiff, v. BOSTON OLD COLONY INSURANCE COMPANY et al., Defendants, Cross-Complainants and Respondents. Boston Old Colony Insurance Company et al., Cross-Complainants and Respondents, v. West of England Ship Owners Mut. Ins. Assoc.-et al., Cross-Defendants and Appellants.
• Court: California Court of Appeals Court of Appeals

70 Cal.Rptr.3d 605

158 Cal.App.4th 1061

CROWLEY MARITIME CORPORATION, Plaintiff, v. BOSTON OLD COLONY INSURANCE COMPANY et al., Defendants, Cross-Complainants and Respondents.

Boston Old Colony Insurance Company et al., Cross-Complainants and Respondents, v. West of England Ship Owners Mut. Ins. Assoc.-et al., Cross-Defendants and Appellants.

No. A116710.

Court of Appeal, First District, Division 1.

January 11, 2008.

Dewey & LeBoeuf, Dean Hansell, Esq., Sharon C. Corda, Esq., Flynn, Delich & Wise, James Barton Nebel, Esq., for Plaintiff and Appellant.

Carroll, Burdick & McDonough, David M. Rice, Esq., Laurie J. Hepler, Esq., Rodney L. Eshelman, Esq., for Respondent.

MARCHIANO, P.J.

In this case we cross the Atlantic Ocean to consider the relationship, if any, between domestic and foreign insurance agreements in an arbitration dispute involving equitable contribution between insurance companies. The insured, plaintiff Crowley Maritime Corporation, received indemnification for claims from two of plaintiffs insurers, respondents Boston Old Colony Insurance Company and Glens Falls Insurance Company. These respondents in turn sought equitable contribution from other insurers of plaintiff, including appellants West of England Ship Owners Mutual Insurance Association (Luxembourg) and The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited.

Appellants, managed in London, petitioned to compel arbitration of respondents' equitable contribution claim under English law, based on appellants' arbitration agreements with their insured plaintiff Crowley Maritime Corporation. The trial court denied the petition on two grounds: (1) the equitable contribution claim does not arise from contract; and (2) respondents are not signatories to the arbitration agreements, and the general rule under both California and federal law is that nonsignatories cannot be compelled to arbitrate.

Appellants claim the trial court erred. We disagree. The equitable contribution claim does not arise from contract, but from equity. Although there are exceptions to the general rule against compelling nonsignatories to arbitrate, the exceptions relied upon by appellants do not apply here. Accordingly, we affirm.

I. FACTS¹

Plaintiff Crowley Maritime Corporation (Crowley) is a tugboat company operating out of Oakland, California. Two lawsuits were brought against Crowley alleging that two of its tugboat captains had contracted mesothelioma from exposure to asbestos on board Crowley tugboats. Crowley settled both claims in an amount exceeding $6 million.

Crowley sought indemnity from one of its insurers, respondent Boston Old Colony Insurance Company (Boston), which initially only indemnified Crowley for a portion of the settlements. Crowley then sued Boston to recover the balance of the settlements.

Boston cross-complained against Crowley and several third-party insurers who had issued policies to Crowley, including appellants West of England Ship Owners Mutual Insurance Association (Luxembourg) and The United Kingdom Mutual Steam Ship Assurance Association (Bermuda) Limited. Boston sought declaratory relief and equitable contribution, alleging that sums it paid to Crowley must be "allocated, according to applicable law, among all the Insurer Third Party Defendants." These third party insurer defendants include appellants.

At the same time, respondent Glens Falls Insurance Company (Glens Falls) filed a complaint in intervention seeking similar relief, including equitable contribution.

Respondent Boston, and possibly also respondent Glens Falls, eventually settled with Crowley for the full amount of Crowley's settlements, i.e., the amount in excess of $6 million.

Crowley had apparently amended its original complaint against Boston to add causes of action against appellants, but then dismissed appellants from its lawsuit.

Appellants petitioned the trial court to stay the entire action and to compel arbitration of the equitable contribution dispute. Appellants' petition was based on their arbitration agreements contained in their insurance contracts with Crowley. Appellants, which are organized in Luxembourg and Bermuda and managed out of London, had contracted with Crowley for arbitration in London with resolution of disputes under English law. Respondents opposed the motion to compel arbitration.

Appellants concede that respondents are not parties or signatories to appellants' arbitration agreements with Crowley.

The trial court ruled as follows:

"`The [question] here is not whether a particular issue is arbitrable, but whether a particular party is bound by the arbitration agreement.' (Comer v. Micor, Inc. (9th Cir.2006) 436 F.3d 1098, 1104, [fn. 11,] italics in the original.) `The reciprocal rights and duties 6f several insurers who have covered the same event do not arise out of contract, for their agreements are not with each other.' (Amer. Auto. Ins. Co. v. Seaboard Surety Co. (1957) 155 Cal. App.2d 192, 195-196, 318 P.2d 84, ... quoted with affirmation in Signal Companies[,] [Inc.] v. Harbor Ins. Co. (1980) 27 Cal.3d 359, 369, 165 Cal.Rptr. 799, 612 P.2d 889....) In this case, the general rule that a contractual provision for arbitration does not bind an entity which is not a party to the contract applies, no matter whether one applies federal or California law. The court denies the motion."

II. DISCUSSION

Appellants contend that respondents may be compelled to arbitrate the equitable contribution dispute, despite the fact that they are not parties or signatories to the arbitration agreements between appellants and Crowley. In particular, appellants contend that the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.) applies and mandates arbitration under decisions interpreting the application of FAA to nonsignatories to arbitration agreements.²

We disagree with appellants because an equitable contribution claim does not arise from contract but from equity, and because there are no applicable exceptions to the general rule that nonsignatories to an arbitration agreement cannot be compelled to arbitrate.

The Nature of Equitable Contribution

Appellants argue that respondents' equitable contribution claim is "entirely dependent" on their "ability to demonstrate that [appellants] owed contractual benefits to Crowley in a specific amount." Appellants further argue respondents can only prevail if they establish that appellants have a contractual duty to indemnify Crowley—as such, "this case is manifestly founded on, and flows from, the contractual rights of a signatory to the arbitration agreement." Appellants conclude that respondents' claim is contractually related. Appellants maintain that respondents seek to "stand in the shoes" of Crowley, and thus should be required to fulfill Crowley's contractual obligations—specifically, arbitration.

Respondents contend that appellants have confused equitable contribution with equitable subrogation. Respondents are correct, as we now explain.

"Although the concepts of contribution and subrogation are both equitable in nature, they are nevertheless distinct. [Citations.]" (Fireman's Fund Ins. Co. v. Maryland Casualty Co. (1998) 65 Cal. App.4th 1279, 1291, 77 Cal.Rptr.2d 296 (Fireman's Fund). Indeed, "the two doctrines are `entirely different' concepts." (Maryland Casualty Co. v. Nationwide Mutual Ins. Co. (2000) 81 Cal.App.4th 1082, 1088, 97 Cal.Rptr.2d 374) [citing and quoting from Fireman's Fund, supra, at p. 1293, 77 Cal.Rptr.2d 296] (Maryland Casualty).)

In the insurance context, equitable subrogation generally involves the substitution of the insurer in the position of its insured in order to seek reimbursement from responsible third parties for the loss paid the insured by the insurer. (Fireman's Fund, supra, 65 Cal.App.4th at pp. 1291-1292, 77 Cal.Rptr.2d 296; see Maryland Casualty, supra, 81 Cal.App.4th at pp. 1088-1089, 97 Cal.Rptr.2d 374.) "The right of subrogation is purely derivative. An insurer entitled to subrogation is in the same position as an assignee of the insured's claim, and succeeds only to the rights of the insured." (Fireman's Fund, supra, at p. 1292, 77 Cal.Rptr.2d 296.) The subrogated insurer "`stands in the shoes'" of its insured. (Ibid.)

In contrast, equitable' contribution is the right to recover from a co-obligor who shares liability with the party seeking contribution, as when multiple insurers insure the same loss and one insurer has paid more than its share to the insured. (Fireman's Fund, supra, 65 Cal. App.4th at p. 1293, 77 Cal.Rptr.2d 296.) "The right of equitable contribution belongs to each insurer individually." (Id. at p. 1294, 77 Cal.Rptr.2d 296.) It has nothing to do with subrogation to the rights of the insured—indeed, it exists independently of subrogation and is meant to facilitate an equitable distribution of liability for the loss. (Id. at pp. 1294-1296, 77 Cal.Rptr.2d 296; see Maryland Casualty, supra, 81 Cal.App.4th at p. 1089, 97 Cal.Rptr.2d 374.) The right of equitable contribution is not the same as "`standing in the shoes'" of the insured. (Fireman's Fund, supra, at p. 1294, 77 Cal.Rptr.2d 296.)

Furthermore, the right to equitable contribution does not arise from contract, because the multiple insurers who may share responsibility for the same loss have not contracted with each other—only with their respective insureds. (See Signal Companies, Inc. v. Harbor Ins. Co., supra, 27 Cal.3d 359, 369, 165 Cal.Rptr. 799, 612 P.2d 889; Truck Ins. Exchange v. Unigard Ins. Co. (2000) 79 Cal.App.4th 966, 974, 94 Cal.Rptr.2d 516.)

Appellants contend, in essence, that respondents' equitable contribution claim arises from contract simply because there are contracts involved—i.e., that appellants' contracts with Crowley must be interpreted to provide coverage before respondents can prevail on their claim for contribution. This short-sighted approach overlooks the nature of contribution, and its distinction from subrogation,...